INTERNATIONAL FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A)
reported a net loss of $6.5 million or $0.12 per share in the fourth quarter of
2011. Included in the Company's accounts in the quarter was the effect of
unrecognized tax assets of $3.9 million or $0.07 per share.
Excluding the tax allowance and other one-time items, Interfor recorded a net
loss of $2.5 million or $0.04 per share compared to a net loss of $0.5 million
or $0.01 per share in the immediately preceding quarter and net earnings of $0.5
million or $0.01 per share in the fourth quarter of 2010.
Also included in the Company's accounts in the fourth quarter was a provision
for share-based compensation of $0.9 million or $0.02 per share compared to a
recovery of $0.9 million or $0.02 per share in the third quarter.
Sales revenue in the fourth quarter was $190.0 million, down $10.2 million or 5%
versus the third quarter, reflecting lower sales volumes and market prices.
EBITDA for the quarter (adjusted to exclude one-time items and "other income")
was $8.0 million, down $6.3 million versus the third quarter and $6.5 million
compared to the fourth quarter of 2010.
Lumber production in the fourth quarter was 294 million board feet, down 20
million board feet or 6 percent versus the third quarter as production rates
were adjusted downwards in the face of log supply issues in the Pacific
Northwest and for maintenance at the Hammond and Acorn mills on the BC Coast.
Sales volumes, including wholesale activities, fell by 18 million board feet to
318 million board feet versus 336 million board feet in the third quarter.
In the quarter, SPF 2x4 in the North American market was US$238, down US$8
versus the third quarter, and Hem-Fir studs were down $US14 to US$260. Prices
and volumes to China weakened quarter-on-quarter as high in-market inventories
and tight credit conditions negatively impacted activity levels in the early
part of the quarter. Prices in the Japanese market for traditional products were
flat while the cedar market was firm as unseasonably mild weather and low
inventories throughout the distribution channel helped to support demand.
Currency rates remained volatile during the quarter with the C$ averaging
US$0.978, down US$0.042 or 4.1% versus the third quarter.
In the quarter, Interfor generated $4.6 million in cash from operations before
changes in working capital and $3.9 million in cash after working capital
changes were considered. Capital spending in the quarter amounted to $9.0
million, including $5.4 million on roads and $2.2 million on discretionary
projects including the projects announced in November to upgrade the Grand Forks
and Castlegar sawmills.
Net debt closed the quarter at $100.3 million or 20 percent of invested capital.
Business conditions have improved in recent weeks with a more positive tone in
the US and higher activity levels in China. That said, the global economic
environment remains uncertain. Interfor expects to maintain operating rates at
current levels or above for the next few quarters but will remain alert to
changes in market activity in order to keep inventories in balance. Considerable
attention is being devoted to the Grand Forks and Castlegar capital projects
with a goal of completing construction by the end of the first quarter of 2013
rather than the original schedule of the end of the third quarter of 2013.
FORWARD-LOOKING STATEMENTS
This release contains information and statements that are forward-looking in
nature, including, but not limited to, statements containing the words "will"
and "is expected" and similar expressions. Such statements involve known and
unknown risks and uncertainties that may cause Interfor's actual results to be
materially different from those expressed or implied by those forward-looking
statements. Such risks and uncertainties include, among others: general economic
and business conditions, product selling prices, raw material and operating
costs, changes in foreign-currency exchange rates, and other factors referenced
herein and in Interfor's Annual Report and Management Information Circular
available on www.sedar.com. The forward-looking information and statements
contained in this report are based on Interfor's current expectations and
beliefs. Readers are cautioned not to place undue reliance on forward-looking
information or statements. Interfor undertakes no obligation to update such
forward-looking information or statements, except where required by law.
ABOUT INTERFOR
Interfor is a leading global supplier, with one of the most diverse lines of
lumber products in the world. The Company has operations in British Columbia,
Washington and Oregon, including two sawmills in the Coastal region of British
Columbia, three in the B.C. Interior, two in Washington and two in Oregon. For
more information about Interfor, visit our website at www.interfor.com.
There will be a conference call on Tuesday, February 21, 2012 at 8:00 AM
(Pacific Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose
of reviewing the Company's release of its Fourth Quarter, 2011 Financial
Results.
The dial-in number is 1-866-323-8540. The conference call will also be recorded
for those unable to join in for the live discussion, and will be available until
March 3, 2012. The number to call is 1-866-245-6755 Passcode 283399.
SELECTED QUARTERLY FINANCIAL INFORMATION (1)
Quarterly Earnings
Summary 2011 2010
---------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
---------------------------------------------------------
(millions of dollars except share, per share and foreign
exchange rate amounts)
Sales
- Lumber 134.9 136.7 134.0 132.5 137.5 113.1 123.7 107.6
- Logs 22.9 36.0 28.6 20.8 20.6 21.9 19.8 17.4
- Wood chips and
other residual
products 17.5 17.6 16.8 16.4 15.7 14.0 13.3 13.2
- Other 14.6 9.9 8.7 10.0 2.4 2.4 1.0 1.7
---------------------------------------------------------
Total Sales 190.0 200.2 188.2 179.7 176.3 151.5 157.9 139.9
---------------------------------------------------------
Operating earnings
(loss) before
restructuring
costs and asset
impairments (5.0) 1.0 (2.0) 1.0 1.5 (2.0) (0.9) (2.4)
Operating earnings
(loss) (4.9) 1.3 (2.1) 0.2 1.5 (2.5) (2.0) (2.5)
Net earnings (loss) (6.5) 0.0 (5.3) (1.7) 0.8 1.4 (3.5) (3.8)
Net earnings (loss)
per share - basic
and diluted (0.12) 0.00 (0.10) (0.04) 0.02 0.03 (0.07) (0.08)
Net earnings
(loss), adjusted
for certain one-
time and other
items(4) (2.5) (0.5) (2.9) (0.5) 0.5 (1.1) (0.6) (2.2)
Net earnings
(loss), adjusted
for certain one-
time and other
items - per
share(4) (0.04) (0.01) (0.05) (0.01) 0.01 (0.02) (0.01) (0.05)
EBITDA(5) 7.9 14.7 11.6 12.8 14.6 15.3 13.7 10.0
Adjusted EBITDA(5) 8.0 14.3 11.6 12.7 14.5 10.6 13.3 10.0
Cash flow from
operations per
share(2) 0.08 0.26 0.22 0.27 0.22 0.18 0.25 0.21
Shares outstanding
(millions)(3)
- end of period 55.9 55.9 55.9 47.5 47.4 47.1 47.1 47.1
- weighted
average
(millions) 55.9 55.9 55.2 47.4 47.2 47.1 47.1 47.1
Average foreign
exchange rate per
US$1.00 1.0230 0.9808 0.9680 0.9856 1.0131 1.0395 1.0283 1.0401
Closing foreign
exchange rate per
US$1.00 1.0170 1.0482 0.9645 0.9696 0.9946 1.0290 1.0646 1.0158
1. Tables may not add due to rounding.
2. Cash generated from operations before taking account of changes in
operating working capital.
3. As at February 17, 2012, the numbers of shares outstanding by class are:
Class A Subordinate Voting shares - 54,847,176 Class B Common shares -
1,015,779, Total - 55,862,955.
4. Net earnings (loss), adjusted for certain one-time and other items
represents net earnings (loss) before restructuring costs, foreign
exchange gains and losses, other income (expense), certain one-time
items and the effect of unrecognized tax assets.
5. The Company discloses EBITDA as it is a measure used by analysts and
Interfor's management to evaluate the Company's performance. As EBITDA
is a non-GAAP measure, it may not be comparable to EBITDA calculated by
others. In addition, as EBITDA is not a substitute for net earnings,
readers should consider net earnings in evaluating the Company's
performance. Adjusted EBITDA represents EBITDA adjusted for other income
and other income of the investee company. EBITDA and Adjusted EBITDA can
be calculated from the statements of operations as follows:
2011 2010
--------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
--------------------------------------------------------
(millions of dollars)
Net earnings (loss) (6.5) 0.0 (5.3) (1.7) 0.8 1.4 (3.5) (3.8)
Add: Income taxes
(recovery) 0.2 0.5 1.2 (0.4) (0.5) (0.2) 1.0 0.2
Finance costs 1.3 1.7 1.9 2.3 2.5 2.6 2.8 2.6
Depreciation,
depletion and
amortization 13.0 13.3 13.6 11.7 11.7 11.0 12.3 11.1
Other foreign
exchange (gains)
losses 0.1 (0.5) 0.1 0.1 0.2 0.1 0.1 -
Restructuring
costs, asset
impairments and
other
costs(recoveries) (0.1) (0.3) 0.1 0.8 - 0.5 1.1 -
--------------------------------------------------------
EBITDA 7.9 14.7 11.6 12.8 14.6 15.3 13.7 10.0
Deduct:
Other income
(expense) - 0.4 - - (0.3) (0.1) 0.4 -
Other income of
associate company - - - - 0.4 4.8 - -
--------------------------------------------------------
Adjusted EBITDA 8.0 14.3 11.6 12.7 14.5 10.6 13.3 10.0
--------------------------------------------------------
Volume and Price Statistics
2011 2010
-----------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
-----------------------------------------
Lumber sales (million fbm) 318 336 334 313 321 277 270 264
Lumber production (million fbm) 294 313 325 332 303 272 277 258
Log sales(1) (thousand cubic
metres) 310 430 314 301 292 289 262 239
Log production(1) (thousand cubic
metres) 795 1,002 796 816 794 595 624 648
Average selling
price - lumber(2) ($/thousand fbm) $424 $407 $401 $423 $428 $408 $459 $408
Average selling
price - logs(1) ($/cubic metre) $69 $74 $82 $61 $64 $73 $68 $64
Average selling
price - pulp
chips ($/thousand fbm) $51 $48 $44 $40 $42 $40 $37 $40
1. B.C. operations
2. Gross sales before duties and export taxes
Quarterly trends normally reflect the seasonality of the Company's operations.
Logging operations are seasonal due to a number of factors including weather,
ground conditions and fire season closures. Generally, the Company's B.C.
Coastal logging divisions experience higher production levels in the latter half
of the first quarter, throughout the second and third quarters and in the first
half of the fourth quarter. Logging activity in the B.C. Interior is generally
higher in the first half of the first quarter, slows during spring thaw and
increases in the third and fourth quarters. Sawmill operations are less seasonal
than logging operations but are dependent on the availability of logs from
logging operations, including those from suppliers. In addition, the market
demand for lumber and related products is generally lower in the winter due to
reduced construction activity, which increases during the spring, summer and
fall.
Operating rates increased in the first quarter, 2010, as lumber prices rose in
response to increased North American demand and a temporary supply/demand
imbalance. During the same period off-shore demand increased, particularly from
China, with rapid export market growth through the remaining quarters of 2010
and the first half, 2011 and leveling off for the balance of 2011.
The volatility of the Canadian dollar also impacted results, given that
historically over 75% of the Canadian operation's lumber sales are to export
markets and priced in U.S. dollars. A strong Canadian dollar reduces the lumber
sales realizations in Canada, but reduces the impact of losses in U.S.
operations when converted to Canadian dollars. No deferred tax assets arising
from loss carry-forwards were recognized during 2010 or 2011.
In the first quarter, 2011 the Company acquired complete control of SGP. It was
wound up in early January, 2011 but continued operations as Seaboard and its
accounts were consolidated from the date of change in control on January 5,
2011. Other sales revenues include the ocean freight revenues of Seaboard.
Quarter 4, 2011 Compared to Quarter 4, 2010
Overview
The Company recorded a net loss of $6.5 million, or $0.12 per share, for the
fourth quarter of 2011 compared to net earnings of $0.8 million, or $0.02 per
share in the fourth quarter of 2010. Before restructuring costs, foreign
exchange gains (losses), other one-time items and a tax valuation allowance, the
Company's net loss for the fourth quarter, 2011 was $2.5 million after-tax or
$0.04 per share, as compared to a net income of $0.5 million after-tax, or $0.01
per share for the fourth quarter, 2010.
EBITDA and Adjusted EBITDA for the fourth quarter of 2011 were $7.9 million and
$8.0 million, respectively, compared to $14.6 million and $14.5 million, for the
comparable quarter in 2010.
During the fourth quarter of 2011, lumber prices in the North American market
decreased significantly compared to 2010. The average price reported by Random
Lengths for SPF 2x4 #2&Btr was US$238 per mfbm for the fourth quarter, 2011
compared to US$269 per mfbm for the same quarter in 2010 and compared to US$246
per mfbm in the third quarter, 2011. The Canadian dollar was weaker this
quarter, which had a positive effect on revenues priced in U.S. dollars, as
compared to the same quarter in 2010.
The Company focused on reducing lumber inventories through to the end of the
fourth quarter, 2011; however inventories ended the year higher than in 2010.
Generally, mill productivity rates were up during the quarter, however
curtailments were taken at some the mills.
Sales
For the fourth quarter of 2011, total sales revenues were $190.0 million which
represented an 8% increase over the same quarter in 2010.
For the fourth quarter, 2011, lumber sales volumes were 318 million fbm and
revenues were $134.9 million. This is a 1% decrease in volume and a 2% decrease
in revenues compared to the same period in 2010. Interfor increased shipments to
the U.S. and Japan in the fourth quarter of 2011, offset by reductions of
shipments to China and Canada when compared to the same quarter in 2010. In the
fourth quarter, 2011 Interfor's lumber sales values decreased by $4 per mfbm or
1% compared to 2010. In the fourth quarter, 2011 the Canadian dollar depreciated
by 1 cent relative to its U.S. counterpart, when compared to the average of the
same quarter in 2010.
Log sales were up $2.4 million, or 11%, for the fourth quarter, 2011 as sales
volumes increased by 18,000 m3 or 6% over the same period in 2010. On the B.C.
Coast, where the majority of log sales are transacted, the price per cubic meter
improved by 10% in the fourth quarter of 2011, compared to the same period in
2010 reflecting higher export volumes and improved log markets.
Compared to the same periods of 2010, pulp chip and other residuals revenues for
the fourth quarter of 2011 were up $1.8 million, resulting from higher overall
chip prices. Average chip prices for the fourth quarter, 2011 increased by 20%
even though pulp prices were lower over the same quarter, 2010. Chip price
increases in the U.S. were enhanced by the weaker Canadian dollar in the fourth
quarter, 2011 versus same period in 2010.
Other revenues for the fourth quarter, 2011 are mainly from Seaboard at $10.8
million; in 2010, Seaboard results were reported as equity income.
Operations
For the fourth quarter of 2011, production volumes decreased by 9 million fbm or
3% compared to the same quarter, 2010. Production costs for the fourth quarter
of 2011 increased $19.6 million or 13%, which includes $11.5 million of costs
related to Seaboard, compared to the same period in 2010. Lumber production, in
general, decreased mainly due to curtailments and/or reduced operating rates at
many of our mills due to high log costs during the quarter. In the fourth
quarter 2011, the Peninsula mills were curtailed due to log supply issues.
Although there were lower total operating hours, higher productivity rates and
lumber recoveries minimized the decrease in overall production volume when
compared to the same quarter in 2010.
Overall unit manufacturing costs per mfbm were higher in the fourth quarter of
2011, when compared to 2010 due to higher log costs. Log costs per mfbm during
the fourth quarter, 2011 versus the same quarter last year were driven up on the
B.C. Coast due to higher depletion and road amortization costs, and at the U.S.
mills due to higher market price of purchased logs and the weaker Canadian
dollar. Fibre supply for the Peninsula mills remains tight and prices high due
to local demands and competition from the export log market. In the B.C.
Interior, log consumption unit costs were lower due to overall lower delivered
log cost and higher lumber recoveries compared to previous year's quarter. The
B.C. Coast conversion unit costs this quarter, 2011 were higher compared to same
quarter, 2010 due to lower production volumes and operating hours mainly due to
log mix and maintenance at our Hammond mill. In the U.S., the unit conversion
costs at the Washington mills were slightly higher due to lower production
volumes and at the Oregon mills were lower due to higher production volumes. At
the B.C. Interior mills, unit conversion costs were down due to higher
productivity rates and production volumes.
Compared to the same quarter in 2010, B.C. log production remained flat overall
with Coastal woodlands harvesting slightly less volume and the Interior
harvesting slightly more volume, due mainly to the Castlegar mill operating more
hours and at increased productivity rates offset in part, by the reduction of
Grand Fork's head rig capacity.
Corporate and Other
Selling and administrative costs for the fourth quarter, 2011 increased by $1.0
million compared to the same quarter, 2010 primarily as a result of increased
sales and export market administrative staff to support sales and marketing
initiatives. LTIC expense is impacted by the change in the Company's share price
and showed an expense of $0.9 million for the fourth quarter, 2011.
Compared to the same period, 2010, Canadian shipments to the U.S. for the fourth
quarter, 2011 decreased by 4.2 million fbm, or 7%, which resulted in a decrease
in export taxes of $0.2 million as the tax rate for both periods remained at
15%.
Amortization of plant and equipment for the fourth quarter in 2011 decreased by
$0.6 million in comparison to the same period in 2010 due to the lower total
operating hours at our manufacturing facilities.
Road amortization and depletion expense for the fourth quarter of 2011 increased
by $1.9 million or 42% compared to the same quarter, 2010 as a result of changes
in areas being logged and a significant reduction in heli-logging activity on
the B.C. Coast, and increased harvesting in the Interior.
Finance Costs, Other Foreign Exchange Gain (loss), Other Income
Fourth quarter, 2011, interest expense was reduced by $1.0 million compared to
same period in 2010, due to the lower rates of the renegotiated Revolving Term
Line and the lower average balance outstanding in the quarter; this was
partially offset by a weaker Canadian dollar in fourth quarter 2011. Other
foreign exchange gains (losses) were negligible for both years.
Other income was negligible in the fourth quarter, 2011 compared to an expense
of $0.3 million for the fourth quarter, 2010 from the disposal of surplus
equipment and roads. In the fourth quarter, 2010, the Company reported equity
participation in the earnings of Seaboard of $1.7 million. Seaboard's results
are consolidated in 2011.
Income Taxes
The Company recorded an income tax expense of $0.2 million in the fourth quarter
of 2011 as compared to a $0.5 million recovery in the comparative period of
2010. The unrecognized deferred tax assets in relation to unused tax losses that
are available to carry forward against future taxable income were increased by
$3.9 million (fourth quarter, 2010 - decreased by $0.3 million). Although the
Company expects to realize the full benefit of the loss carry-forwards and other
deferred tax assets, due the cyclical nature of the forest products industry and
the economic conditions over the last several years, the Company has not
recognized the benefit of its deferred tax assets in excess of its deferred tax
liabilities.
Cash Flow
Cash generated by the Company from operations, after changes in working capital,
was $3.9 million for the fourth quarter of 2011, compared to cash generated of
$5.4 million for the fourth quarter of 2010. Net earnings for the fourth quarter
2011 was $7.2 million lower than the same period in 2010, which resulted in
quarterly cash from operations of $4.6 million in 2011 compared to $10.6 million
in 2010.
In the fourth quarter of 2011, funds were drawn from the Revolving Term Line for
operating and capital requirements, which were partially repaid during the
quarter. In the fourth quarter, 2010 the Company received an $8.8 million
advance from Seaboard which it used to pay down a portion of its Revolving Term
Line.
Capital expenditures on plant and equipment for the fourth quarter, 2011 were
$3.5 million, of which $2.2 million was on high return discretionary projects
and $1.3 million on maintenance of operating capacity. Spending on road
construction totaled $5.4 million. Comparable spending for the fourth quarter,
2010 of $8.9 million was divided evenly between high return discretionary and
maintenance projects, and road construction.
The Company had cash of $10.4 million at December 31, 2011 and ended the quarter
with net debt of $100.3 million or 20.4% of invested capital.
Softwood Lumber Agreement Arbitration
On October 8, 2010, the U.S. Trade Representative's office filed a request for
consultations with Canada under the terms of the SLA over its concern that the
province of British Columbia is charging too low a price for certain grades of
timber harvested on public lands in the B.C. Interior.
Under the terms of the SLA, consultations between the two governments were held
but the matter was not resolved and on January 18, 2011 the U.S. Trade
Representative filed for arbitration by the London Court of International
Arbitration ("LCIA"). Decisions by the LCIA are final and binding on both
parties.
In August, 2011, the U.S. Trade Representative filed a detailed statement of
claim with the LCIA. In November, 2011, B.C. lumber producers filed their
statement of defense against the U.S. allegations that Canada is exporting
mountain pine beetle lumber at unfairly low prices. Oral arguments are to be
heard February 2012. The Company believes that B.C. and Canada are complying
with their obligations under the SLA.
As the U.S. arbitration request is still in preliminary stages the existence of
any potential claim has not been determined and no provision has been recorded
in the financial statements as at December 31, 2011.
While the arbitration process is ongoing, export tax will continue to apply on
all shipments of B.C. lumber to the U.S.
Significant Customer enters into Creditor Protection
On January 31, 2012, Catalyst Paper Corporation ("Catalyst") announced that the
company and certain of its subsidiaries had obtained an Initial Order from the
Supreme Court of British Columbia under the Companies' Creditors Arrangement
Act. Catalyst is the primary buyer of Interfor's chips on the B.C. Coast, under
long-term purchase contracts. Catalyst is also a purchaser of Interfor's pulp
logs and other residuals.
Catalyst has indicated that the operations of Catalyst and its subsidiaries are
intended to continue as usual, and obligations to employees and suppliers during
the restructuring process are expected to be met in the ordinary course.
All trade accounts receivable outstanding as at December 31, 2011 have been
collected in 2012 and therefore no allowance was provided.
As at February 17, 2012 the trade accounts receivable at risk for non-payment
totals approximately $0.4 million.
The outcome of Catalyst's restructuring and any potential impact to the Company
cannot be determined at this point. The court has granted Interfor a security
interest as a critical supplier, on all current and future products purchased
from Interfor.
NEW ACCOUNTING POLICIES AND ACCOUNTING POLICY CHANGES
Convergence with International Financial Reporting Standards
Effective January 1, 2011 Canadian publicly listed entities were required to
prepare their financial statements in accordance with IFRS. Due to the
requirement to present comparative financial information, the effective
transition date was January 1, 2010.
While IFRS uses a conceptual framework similar to Canadian Generally Accepted
Accounting Principles ("GAAP"), there are significant differences on
recognition, measurement, and disclosures. The Company identified a number of
key areas impacted by changes in accounting policies, including: property,
plant, and equipment; impairment of assets; provisions, including reforestation
liabilities and other decommissioning obligations; share-based payments;
employee future benefits; and deferred income taxes.
Note 28 to the consolidated financial statements provides more detail on key
Canadian GAAP to IFRS differences, accounting policy decisions and IFRS 1,
First-Time Adoption of International Financial Reporting Standards optional
exemptions for significant or potentially significant areas that have had an
impact on Interfor's financial statements on transition to IFRS or may have an
impact in future periods.
IFRS Transitional Impact on Equity
As a result of the policy choices selected and changes required under IFRS,
Interfor has recorded an increase in equity of $3.4 million as at the date of
transition, January 1, 2010. The table below outlines adjustments to equity on
adoption of IFRS on January 1, 2010 and December 31, 2010 for comparative
purposes(1):
January 1 December 31
2010 2010
----------------------------------------------------------------------------
(millions of dollars)
Equity under Canadian GAAP $358.0 $347.3
Transition election to fair value property 15.7 15.7
Employee future benefits (6.9) (9.0)
Decommissioning liabilities (2.8) (3.3)
Share based compensation (2.1) (2.2)
Equity participation in associate's income (0.9) (1.1)
Deferred income taxes 0.3 -
----------------------------------------------------------------------------
Total IFRS adjustments to equity 3.4 0.2
----------------------------------------------------------------------------
Equity under IFRS $361.4 $347.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. Table may not add due to rounding
IFRS Impact on Comprehensive Income
The following is a summary of the adjustments to Comprehensive Income for the
year ended December 31, 2010 under IFRS:(1)
Year ended
December 31, 2010
----------------------------------------------------------------------------
(millions of dollars)
Comprehensive loss under Canadian GAAP $(11.6)
Profit adjustments
Employee future benefits 0.4
Decommissioning liabilities (0.5)
Share based compensation (0.1)
Equity participation in associate's income(2) -
Plant and equipment(2) -
Deferred income taxes (0.9)
----------------------------------------------------------------------------
Total IFRS adjustments to net earnings (1.3)
----------------------------------------------------------------------------
Other comprehensive income adjustments
Employee future benefits - actuarial gains
(losses) (2.5)
Equity participation in associate's employee
future benefits (0.1)
Deferred income taxes 0.6
----------------------------------------------------------------------------
Total other comprehensive income adjustments (2.0)
----------------------------------------------------------------------------
Comprehensive income (loss) under IFRS $(14.8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. Table may not add due to rounding
2. Due to rounding, amount appears to have no impact
IFRS Impact on Cash Flow Statement
The only impact of IFRS on the Statement of Cash Flows is in the presentation of
cash interest paid as a financing activity. Under previous Canadian GAAP, cash
interest paid was included as an operating activity.
As a result, this presentation change will increase the cash flows from
operating activities and reduce cash flows from financing activities in future
periods by the equivalent amount. For the year ended December 31, 2010 operating
cash flows increased by $8.9 million compared to Canadian GAAP, with cash flow
from financing activities reduced by the same amount. There is no impact on cash
and cash equivalents as a result of this presentation change.
IFRS Impact on Financial Statement Presentation
The transition to IFRS has resulted in numerous presentation changes in the
financial statements. The significant changes are summarized as follows:
-- Other intangible assets include software licences. These licences were
previously included in Property, plant and equipment;
-- The Statement of Financial Position presents additional disclosure of
balances separately including employee future benefits assets and
provisions and the investment in associate company;
-- Finance costs include interest on debt, accretion expense for
decommissioning provisions, and amortization of prepaid financing costs.
Accretion was previously included in Production costs. Amortization of
prepaid financing costs was previously included in Depletion and
amortization of timber, roads and other; and
-- Interest paid is presented as a financing activity in the Statement of
Cash Flows, as previously described.
The above changes are reclassifications within the financial statements and have
no impact on net earnings or equity.
IFRS Impact on Key Performance Measures
The transition to IFRS did not significantly impact the Company's financial
covenants and key ratios that have an equity component.
IFRS Impact on Controls and Information Systems
A review of the Company's information systems and the day-to-day accounting
processes and controls was carried out during the IFRS conversion project and no
significant impacts were identified. No significant changes to computer systems
were required and no changes which materially affect, or are reasonably likely
to materially affect, the Company's controls are required. To ensure the
effectiveness of the key monitoring controls under IFRS, additional training has
been performed in relation to the specific impacts of IFRS on the Company's
financial policies and statements.
New Accounting Policy - Derivative Financial Instruments, Interest Rate Swaps
On August 25, 2011, the Company entered into two interest rate swaps and
designated these financial instruments as cash flow hedges. The intent of these
swaps is to convert floating-rate interest expense to fixed-rate interest
expense based on BA CDOR. As these derivatives are designated as the hedging
instrument in a cash flow hedge of fluctuations in market interest rates
associated with specific drawings under the Revolving Term Line, the effective
portion of changes in the fair value of the derivative is recognized in Other
comprehensive income (loss) and presented in the Hedging reserve in Equity. Any
ineffective portion of the changes in the fair value of the derivative is
recognized immediately in Net earnings (loss).
Future Accounting Policy Changes
IFRS 9, Financial Instruments, replaces the multiple classification and
measurement models in IAS 39, Financial Instruments: Recognition and
Measurement, with a single model that has only two classification categories:
amortized cost and fair value. This standard is in effect for accounting periods
beginning on or after January 1, 2015, with earlier adoption permitted.
IAS 19, Employee Benefits, was revised to eliminate the option to defer
recognition of gains and losses, known as the "corridor method", and to enhance
disclosure requirements for defined benefit plans. As the Company did not choose
the corridor method in accounting for its defined benefit plans, there is no
impact on its financial statements as a result of the elimination of this
option. This standard is in effect for accounting periods beginning on or after
January 1, 2013, with earlier adoption permitted.
As at the reporting date, no assessment has been made of the impact of the
standard on the Company's financial statements other than the effect of the
elimination of the corridor method.
The standard-setting bodies that set IFRS have significant ongoing projects that
could impact the IFRS accounting policies selected. Specifically, it is
anticipated that there will be additional new or revised IFRS or IFRIC standards
in relation to financial instruments and leases currently on the International
Accounting Standards Board agenda.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and years ended December 31, 2011 and 2010 (unaudited)
(thousands of Canadian dollars except earnings (loss) per share)
3 Months 3 Months Year Year
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
(notes 2, 19) (notes 2, 19)
Sales $189,952 $176,303 $758,016 $625,618
Costs and expenses:
Production 173,412 153,770 681,363 556,551
Selling and administration 5,300 4,328 20,548 17,508
Long term incentive compensation
expense 934 2,446 449 1,966
Export taxes 2,313 2,524 9,029 7,427
Depreciation of plant and
equipment (note 10) 6,751 7,344 27,291 27,475
Depletion and amortization of
timber, roads and other (note 10) 6,208 4,357 24,263 18,521
--------------------------------------------------------------------------
194,918 174,769 762,943 629,448
----------------------------------------------------------------------------
Operating earnings (loss) before
restructuring costs (4,966) 1,534 (4,927) (3,830)
Restructuring (costs) recovery (note
11) 104 9 (580) (1,578)
----------------------------------------------------------------------------
Operating earnings (loss) (4,862) 1,543 (5,507) (5,408)
Finance costs (note 12) (1,268) (2,509) (7,094) (10,441)
Other foreign exchange gain (loss) (127) (169) 204 (280)
Other income (expense) (note 13) (45) (284) 371 (25)
Equity in earnings of associate
company - 1,652 - 11,431
----------------------------------------------------------------------------
(1,440) (1,310) (6,519) 685
----------------------------------------------------------------------------
Earnings (loss) before income taxes (6,302) 233 (12,026) (4,723)
Income tax expense (recovery):
Current 282 18 817 60
Deferred (117) (541) 610 410
--------------------------------------------------------------------------
165 (523) 1,427 470
----------------------------------------------------------------------------
Net earnings (loss) (6,467) 756 (13,453) (5,193)
Other comprehensive income (loss):
Foreign currency translation
differences (4,024) (4,730) 2,632 (7,433)
Defined benefit plan actuarial
losses 1,030 1,644 (4,541) (2,490)
Equity share of associate
company's defined benefit plan
actuarial losses - 372 - (115)
Loss in fair value of interest
rate swaps (3) - (503) -
Income tax recovery (expense) on
other comprehensive income (loss) - (281) 250 410
--------------------------------------------------------------------------
(2,997) (2,995) (2,162) (9,628)
----------------------------------------------------------------------------
Total comprehensive loss for the
period $ (9,464) $ (2,239) $(15,615) $(14,821)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss) per share, basic
and diluted (note 14) $ (0.12) $ 0.02 $ (0.25) $ (0.11)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2011 and 2010 (unaudited)
(thousands of Canadian dollars)
Year Year
Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net loss $ (13,453) $ (5,193)
Items not involving cash:
Depreciation of plant and equipment 27,291 27,475
Depletion and amortization of timber, roads
and other 24,263 18,521
Income tax recovery 1,427 470
Finance costs 7,094 10,441
Other assets 238 (5)
Reforestation liability (90) (670)
Provisions and other liabilities (2,761) 287
Equity in earnings of associate company - (11,431)
Write-downs (reversals) of plant and
equipment and roads (423) 809
Unrealized foreign exchange losses (gains) 191 (71)
Other (note 13) (184) 25
--------------------------------------------------------------------------
43,593 40,658
Cash generated from (used in) operating
working capital:
Trade accounts receivable and other 3,191 (13,461)
Inventories (25,613) (12,423)
Prepayments (1,698) (551)
Trade accounts payable and accrued
liabilities 9,588 15,161
Income taxes refunded (paid) (622) 396
--------------------------------------------------------------------------
28,439 29,780
Investing activities:
Additions to property, plant and equipment (16,099) (10,745)
Additions to logging roads (19,987) (16,261)
Additions to timber and other intangible
assets (126) (15,218)
Proceeds on disposal of property, plant, and
equipment 273 1,325
Cash received on acquisition of subsidiary
(note 5) 4,846 -
Investments and other assets (921) (4,383)
--------------------------------------------------------------------------
(32,014) (45,282)
Financing activities:
Issuance of capital stock, net of share issue
expenses (note 9) 56,256 862
Interest payments (5,629) (8,881)
Funds from promissory note payable to
associate - 15,738
Additions to long-term debt (note 8(b)) 100,000 125,819
Repayments of long-term debt (note 8(b)) (146,000) (112,534)
--------------------------------------------------------------------------
4,627 21,004
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency 82 (3)
----------------------------------------------------------------------------
Increase in cash 1,134 5,499
Cash and cash equivalents, beginning of year 9,301 3,802
----------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 10,435 $ 9,301
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 2011 and December 31, 2010 (unaudited)
(thousands of Canadian dollars)
Dec. 31, Dec. 31,
2011 2010
--------------------------------------------------------------------------
(notes 2, 19)
Assets
Current assets:
Cash and cash equivalents (note 8(c)) $ 10,435 $ 9,301
Trade accounts receivable and other 44,000 45,961
Inventories (note 7) 97,645 71,762
Prepayments 10,757 8,334
------------------------------------------------------------------------
162,837 135,358
Employee future benefits 1,256 515
Investment in associate company (notes 5 and 6) - 16,074
Other investments and assets 2,836 2,636
Property, plant and equipment 340,034 347,990
Logging roads and bridges 16,753 17,063
Timber licences 76,792 80,154
Other intangible assets 1,250 1,723
Goodwill 13,078 13,078
--------------------------------------------------------------------------
$614,836 $614,591
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Liabilities and Equity
Current liabilities:
Trade accounts payable and accrued liabilities $ 60,692 $ 50,053
Reforestation liability 14,121 9,785
Income taxes payable 1,058 230
Payable to associate company (note 6) - 15,738
------------------------------------------------------------------------
75,871 75,806
Reforestation liability 17,777 17,325
Long-term debt (notes 8(a), 8(b)) 110,713 156,037
Employee future benefits 8,186 5,815
Provisions and other liabilities 11,467 12,158
Equity:
Share capital (note 9)
Class A subordinate voting shares 342,285 285,362
Class B common shares 4,080 4,080
Contributed surplus 7,476 5,408
Translation reserve (4,929) (7,646)
Hedge reserve (503) -
Retained earnings 42,413 60,246
------------------------------------------------------------------------
390,822 347,450
--------------------------------------------------------------------------
$614,836 $614,591
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Contingencies (note 17)
Subsequent events (note 18)
See accompanying notes to consolidated financial statements
On behalf of the Board:
E.L. Sauder, Director
G.H. MacDougall, Director
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2011 and 2010 (unaudited)
(thousands of Canadian dollars)
Class Class Contri- Trans- Hed-
A B buted lation ging
Share Share Sur- Re- Res- Retained
Capital Capital plus serve erve Earnings Total
----------------------------------------------------------------------------
Balance at
January 1, 2010 $284,500 $4,080 $5,408 $ - $ - $ 67,421 $361,409
Net loss for the
period: - - - - - (5,193) (5,193)
Other
comprehensive
loss:
Foreign currency
translation
differences,
net of tax - - - (7,646) - - (7,646)
Defined benefit
plan actuarial
losses, net of
tax - - - - - (1,867) (1,867)
Equity in
associate
company's
defined benefit
plan actuarial
losses - - - - - (115) (115)
Contributions:
Share options
exercised 862 - - - - - 862
----------------------------------------------------------------------------
Balance at
December 31,
2010 285,362 4,080 5,408 (7,646) - 60,246 347,450
Net loss for the
period: - - - - - (13,453) (13,453)
Other
comprehensive
earnings
(loss):
Foreign currency
translation
differences,
net of tax - - - 2,717 - - 2,717
Defined benefit
plan actuarial
losses, net of
tax - - - - - (4,376) (4,376)
Loss in fair
value of
interest rate
swaps - - - - (503) - (503)
Contributions:
Share options
exercised 1,370 - - - - - 1,370
Share issuance,
net of share
issue expenses
and tax 55,553 - - - - - 55,553
Changes in
ownership
interests in
investee:
Acquisition of
subsidiary - - 2,068 - - (4) 2,064
----------------------------------------------------------------------------
Balance at
December 31,
2011 $342,285 $4,080 $7,476 $(4,929) $(503) $ 42,413 $390,822
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
INTERNATIONAL FOREST PRODUCTS LIMITED
Notes to Unaudited Interim Consolidated Financial Statements
(Tabular amounts expressed in thousands except per share amounts)
Three months and years ended December 31, 2011 and 2010 (unaudited)
1. Nature of operations:
International Forest Products Limited and its subsidiaries (the "Company" or
"Interfor") is a producer of wood products in British Columbia and the U.S.
Pacific Northwest for sale to markets around the world.
The Company is a publicly listed company incorporated under the Business
Corporations Act (British Columbia) with shares listed on the Toronto Stock
Exchange. Its head office, principal address and records office is located at
Suite 3500, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1H7.
The condensed consolidated interim financial statements of the Company as at and
for the three months and year ended December 31, 2011 comprise the Company and
its subsidiaries. The consolidated financial statements of the Company as at and
for the year ended December 31, 2010 which were prepared under Canadian
generally accepted accounting principles ("GAAP") are available on
www.sedar.com.
2. Statement of Compliance:
(a) Statement of compliance and conversion to International Financial Reporting
Standards ("IFRS"):
For fiscal years commencing January 1, 2011 Canadian GAAP were converged with
IFRS. Consequently, the Company has prepared current and comparative financial
information under IFRSs for the reporting period ending December 31, 2011. These
condensed consolidated interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting. As these IFRS condensed
consolidated interim financial statements are for part of the period covered by
the first IFRS annual financial statements IFRS 1 First-time Adoption of
International Financial Reporting Standards has been applied. The condensed
consolidated interim financial statements do not include all of the information
required for full annual financial statements.
An explanation of how the transition to IFRSs has affected the reported
financial position, financial performance and cash flows of the Company as at
the date of transition of January 1, 2010 and as at December 31, 2010 have been
fully described in note 19 of the Company's unaudited condensed consolidated
interim financial statements as at and for the three months ended March 31, 2011
as filed on www.sedar.com.
Reconciliations of equity as at December 31, 2010 and total comprehensive income
for the three months and year ended December 31, 2010 comparative periods
reported under Canadian GAAP to those reported for those periods under IFRS are
provided in note 19.
In these financial statements the term Canadian GAAP refers to Canadian GAAP
before the adoption of IFRS.
These condensed consolidated interim financial statements were approved by the
Board of Directors on February 17, 2012.
(b) Basis of measurement:
The condensed consolidated interim financial statements have been prepared on
the historical cost basis except for the following material items in the
Statement of Financial Position:
(i) Derivative financial instruments are measured at fair value;
(ii) Long-term debt is measured at fair value at inception and at amortized cost
thereafter;
(iii) Liabilities for cash-settled share-based payment arrangements are measured
at fair value; and
(iv) The employee benefit assets and liabilities are recognized as the net of
the fair value of the plan assets and the present value of the benefit
obligations on a plan by plan basis.
3. Significant accounting policies:
The accounting policies that the Company has adopted in its consolidated
financial statements for the year ended December 31, 2011 have been fully
described in note 3 of the Company's unaudited condensed consolidated interim
financial statements as at and for the three months ended March 31, 2011 and as
filed on www.sedar.com. These accounting policies have been applied consistently
to all periods presented in these condensed consolidated interim financial
statements.
New Accounting Policy - Derivative Financial Instruments, Interest Rate Sw aps:
On August 25, 2011, the Company entered into two interest rate swaps and
designated these financial instruments as cash flow hedges. The intent of these
swaps is to convert floating-rate interest expense to fixed-rate interest
expense based on BA CDOR. As these derivatives are designated as the hedging
instrument in a cash flow hedge of fluctuations in market interest rates
associated with specific drawings under the Revolving Term Line, the effective
portion of changes in the fair value of the derivative is recognized in Other
comprehensive income (loss) and presented in the Hedging reserve in Equity. Any
ineffective portion of the changes in the fair value of the derivative is
recognized immediately in Net earnings (loss).
Future accounting changes:
IFRS 9, Financial Instruments, replaces the multiple classification and
measurement models in IAS 39, Financial Instruments: Recognition and
Measurement, with a single model that has only two classification categories:
amortized cost and fair value. This standard is in effect for accounting periods
beginning on or after January 1, 2015, with earlier adoption permitted.
IAS 19, Employee Benefits, was revised to eliminate the option to defer
recognition of gains and losses, known as the "corridor method", and to enhance
disclosure requirements for defined benefit plans. As the Company did not choose
the corridor method in accounting for its defined benefit plans, there is no
impact on its financial statements as a result of the elimination of this
option. This standard is in effect for accounting periods beginning on or after
January 1, 2013, with earlier adoption permitted.
As at the reporting date, no assessment has been made of the impact of the
standard on the Company's financial statements other than the effect of the
elimination of the corridor method.
4. Seasonality of operating results:
Quarterly trends normally reflect the seasonality of the Company's operations.
Logging operations are seasonal due to a number of factors including weather,
ground conditions and fire season woods closures. Generally, the Company's B.C.
Coastal logging divisions experience higher production levels in the latter half
of the first quarter, throughout the second and third quarters and in the first
half of the fourth quarter. Logging activity in the B.C. Interior is generally
higher in the first half of the first quarter, slows during spring thaw and
increases in the third and fourth quarters. Sawmill operations are less seasonal
than logging operations but are dependent on the availability of logs from
logging operations, including those from suppliers. In addition, the market
demand for lumber and related products is generally lower in the winter due to
reduced construction activity, which increases during the spring, summer and
fall.
5. Acquisition:
On January 5, 2011, all partners in the Seaboard General Partnership ("the SGP")
withdrew with the exception of Interfor. The SGP was wound-up on January 7, 2011
and continues shipping operations as Seaboard Shipping Company Limited
("Seaboard") which became a wholly- owned subsidiary of Interfor. Seaboard's
accounts are included in the consolidated financial statements of the Company
from the date of change in control.
This acquisition has been accounted for using the purchase method. At the date
of change in control the identifiable assets acquired and liabilities and
residual equity assumed were recorded at fair value based on management's best
estimates and allocated as follows:
Assets acquired:
Cash $ 4,846
Other current assets 1,950
Employee future benefits 1,659
----------------------------------------------------------------------------
8,455
Liabilities assumed:
Current liabilities (4,792)
Income taxes payable (630)
Employee future benefits (326)
Deferred income taxes (307)
Residual equity assumed:
Contributed surplus (2,068)
Withdrawing partners' share of actuarial gains and losses
recognized through Other Comprehensive Income 4
----------------------------------------------------------------------------
Previous carrying value of investment in associate $ 336
----------------------------------------------------------------------------
----------------------------------------------------------------------------
There was no cash consideration paid and the net assets acquired were equal to
the existing interest in Seaboard at the date of change in control.
For the year ended December 31, 2011 Seaboard contributed $39,875,000 in sales
revenue and $2,298,000 in net earnings.
6. Payable to associate company:
On July 30, 2010 the SGP made an advance to its partners, with the Company's
share of the advance being $6,896,000. A second advance was made on December 30,
2010 and Interfor received an additional $8,842,000. The Company signed
unsecured promissory notes in respect of each of these advances, payable on
demand on or before January 3, 2011 and non-interest bearing until January 3,
2011.
On January 3, 2011, the SGP declared an income distribution to its partners, of
which the Company's share of $15,738,000 was received by way of setoff against
the promissory note payable to the SGP. In accordance with equity accounting,
the income distribution was recorded as a reduction of the investment in
associate company.
7. Inventories:
Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Logs $59,412 $39,107
Lumber 31,729 27,353
Other 6,504 5,302
----------------------------------------------------------------------------
$97,645 $71,762
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inventory expensed in the period includes production costs, depreciation of
plant and equipment, and depletion and amortization of timber, roads and other.
The inventory writedown in order to record inventory at the lower of cost and
net realizable value at December 31, 2011 was $10,006,000 (December 31, 2010 -
$6,253,000).
8. Cash and borrowings:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving
Operating Term
December 31, 2011 Facility Facility Total
----------------------------------------------------------------------------
Available line of credit $65,000 $200,000 $265,000
Maximum borrowing available 65,000 200,000 265,000
Drawings - 110,713 110,713
Outstanding letters of credit included in line
utilization 5,062 - 5,062
Unused portion of line 59,938 89,287 149,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Available line of credit $65,000 $200,000 $265,000
Maximum borrowing available 65,000 200,000 265,000
Drawings - 156,037 156,037
Outstanding letters of credit included in line
utilization 4,756 - 4,756
Unused portion of line 60,244 43,963 104,207
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Minimum principal amounts due on long-term debt within the next five years
are follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Twelve months ending
December 31, 2012 $ -
December 31, 2013 -
December 31, 2014 -
December 31, 2015 110,713
December 31, 2016 -
----------------------------------------------------------------------------
$110,713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Operating Line:
The Canadian operating line of credit ("Operating Line") may be drawn in either
CAD$ or US$ advances, and bears interest at bank prime plus a margin or, at the
Company's option, at rates for Bankers' Acceptances or LIBOR based loans plus a
margin, and in all cases dependent upon a financial ratio of total debt divided
by twelve months' trailing EBITDA1. Borrowing levels under the Operating Line
are subject to a borrowing base calculation dependent on certain accounts
receivable and inventories.
The Operating Line is secured by a general security agreement which includes a
security interest in all accounts receivable and inventories, charges against
timber tenures, and mortgage security on sawmills. The Operating Line is subject
to certain financial covenants including a minimum working capital requirement,
a maximum ratio of total debt to total capitalization and a minimum net worth
calculation. As at December 31, 2011, other than outstanding letters of credit
included in the line utilization, the Operating Line was undrawn (December 31,
2010 - $nil).
On July 11, 2011, the Company extended and amended its Operating Line with the
maturity date of the Operating Line extended from July 28, 2012 to July 28,
2015. All other terms and conditions of the line remain substantially unchanged
except for a reduction in pricing.
(b) Revolving Term Line:
The Revolving Term Line may be drawn in either CAD$ or US$ advances, and bears
interest at bank prime plus a margin or, at the Company's option, at rates for
Bankers' Acceptances or LIBOR based loans plus a margin, and in all cases
dependent upon a financial ratio of total debt divided by twelve months'
trailing EBITDA(1).
The Revolving Term Line is available to a maximum of $200,000,000 and is secured
by a general security agreement which includes a security interest in all
accounts receivable and inventories, charges against timber tenures, and
mortgage security on sawmills. The line is subject to certain financial
covenants including a minimum working capital requirement and a maximum ratio of
total debt to total capitalization and a minimum net worth calculation.
As at December 31, 2011, the Revolving Term Line was drawn by US$30,200,000
(December 31, 2010 - US$30,200,000) revalued at the year-end exchange rate to
$30,713,000 (December 31, 2010 - $30,037,000), and $80,000,000 (December 31,
2010 - $126,000,000) for total drawings of $110,713,000 (December 31, 2010 -
$156,037,000).
The US$30,200,000 drawing under the Revolving Term Line has been designated as a
hedge against the Company's investment in its U.S. operations and unrealized
foreign exchange losses of $676,000 (2010 - $1,703,000 gain) arising on
revaluation of the Non-Revolving Term Line were recognized in Foreign exchange
translation differences in Other comprehensive income. For the fourth quarter,
2011 the unrealized foreign exchange gain of $942,000 (Quarter 4, 2010 -
$1,039,000 gain) was recognized in Other comprehensive income.
On July 11, 2011, the Company extended and amended its Revolving Line with the
maturity date of the Revolving Line extended from July 28, 2013 to July 28,
2015. All other terms and conditions of the line remain substantially unchanged
except for a reduction in pricing.
(1) EBITDA represents earnings before interest, taxes, depreciation, depletion
and amortization.
(c) Other:
On January 5, 2011 the Company acquired full control of Seaboard and its
wholly-owned subsidiary, Seaboard International Shipping Company (see note 5).
Seaboard had demand facilities with a Canadian bank which were secured by a
general assignment of accounts receivable, inventory and insurance. The demand
lines could be drawn in either CAD$ or US$ and bore interest at either the bank
prime rate plus a margin for CAD$ borrowings or the U.S. base rate plus a margin
for $US borrowings. Borrowing levels under the line were subject to a borrowing
base calculation dependent on certain accounts receivable.
On September 29, 2011 both lines were cancelled and the related security was
released.
At December 31, 2011 the Company's cash balances are restricted by the amount of
Seaboard's outstanding letters of credit of $134,000.
9. Share capital:
The transactions in share capital are described below:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Number
---------------------------------
Class A Class B Total Amount
----------------------------------------------------------------------------
Balance, December 31, 2009 46,101,476 1,015,779 47,117,255 $288,580
Shares issued on exercise of
options 236,200 - 236,200 862
----------------------------------------------------------------------------
Balance, December 31, 2010 46,337,676 1,015,779 47,353,455 289,442
Shares issued on exercise of
options 287,000 - 287,000 1,370
Share issuance, net of share issue
costs and income tax benefit 8,222,500 - 8,222,500 55,553
----------------------------------------------------------------------------
Balance, December 31, 2011 54,847,176 1,015,779 55,862,955 $346,365
----------------------------------------------------------------------------
----------------------------------------------------------------------------
On April 8, 2011 the Company closed a public offering of 8,222,500 Class A
Subordinate Voting shares at a price of $7.00 per share for net cash
proceeds of $54,886,000.
10. Depreciation, depletion and amortization:
Depreciation, depletion and amortization allocated by function is as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Production $12,722 $11,441 $50,644 $44,973
Selling and
administration 237 260 910 1,023
----------------------------------------------------------------------------
$12,959 $11,701 $51,554 $45,996
----------------------------------------------------------------------------
----------------------------------------------------------------------------
11. Restructuring costs:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Severance costs
(recovery) $(104) $(9) $ 265 $1,093
Contractor buyout - - 840 -
Plant and equipment
write-downs
(reversal) - - (423) 485
Other recovery - - (102) -
----------------------------------------------------------------------------
$(104) $(9) $ 580 $1,578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Restructuring costs of $850,000 in the first quarter, 2011 resulted from the
buyout of a logging contractor's Bill 13 entitlements and severance costs
related to early retirement of hourly workers.
Additional payments in the second quarter, 2011 resulted in the recognition of
further restructuring costs of $175,000 for the buyout of Bill 13 entitlements.
Further hourly worker early retirements were slightly offset by revisions to
previously accrued severances resulted in a recovery of $102,000 in the second
quarter, and an expense of $118,000 in the third quarter, 2011.
During the third quarter, 2011, the Company also reversed an amount of $423,000
for a write-down for an asset previously considered impaired. A refinement of
severance provisions resulted in a reversal of $104,000 in severance costs for
the fourth quarter, 2011.
During the first quarter of 2010 the Company revised its estimated severance
costs and recorded $33,000 in additional restructuring costs. In the second
quarter of 2010 the Company restructured certain of its manufacturing operations
resulting in additional severance costs of $1,074,000. The Company recorded
$485,000 in asset write-downs in the third quarter, 2010, as it determined
certain assets were impaired.
12. Finance costs:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Interest on
borrowing $1,120 $2,104 $5,608 $8,525
Accretion expense 132 173 707 787
Amortization of
prepaid finance
costs 16 232 779 1,129
----------------------------------------------------------------------------
10,44
$1,268 $2,509 $7,094 $ 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
13. Other income (expense):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Gain (loss) on
disposal of
surplus plant
and equipment,
and licences $(44) $ (84) $184 $(201)
Gain on
settlement of
timber takeback - - - 376
Gain on lumber
futures trading (1) - 187 -
Other (expense) - (200) - (200)
----------------------------------------------------------------------------
$(45) $(284) $371 $ (25)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
In the first, second and third quarters, 2011, the Company disposed of surplus
equipment and a timber licence which generated $257,000 in proceeds and a gain
of $228,000. Further minor sales of surplus property resulted in a loss of
$44,000 for the fourth quarter, 2011.
During the third and fourth quarters, 2011 the Company generated a gain of
$187,000 on lumber futures trading.
In the first quarter of 2010, minor disposals of surplus equipment resulted in
proceeds of $14,000 and a loss of $8,000. In the second quarter, 2010, the
Company received further compensation under the Forest Act for timber, roads and
bridges resulting from the 2006 legislated takeback of certain logging rights on
the B.C. Coast which, combined with further minor disposals of surplus
equipment, resulted in proceeds of $475,000 and a gain of $413,000.
Additional minor sales of surplus equipment in the third quarter, 2010 generated
proceeds of $812,000 and a loss of $146,000. In the fourth quarter, 2010,
further disposals of surplus equipment and roads generated proceeds of $24,000
and a loss of $284,000.
14. Net earnings (loss) per share:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Dec. 31, 2011 3 Months Dec. 31, 2010
--------------------------- --------------------------
Weighted Weighted
Average Average
Net Number of Per Net Number of Per
loss Shares share earnings Shares share
----------------------------------------------------------------------------
Basic earnings per
share $(6,467) 55,863 $(0.12) $ 756 47,165 $0.02
Share options - - - - 7 -
----------------------------------------------------------------------------
Diluted earnings per
share $(6,467) 55,863 $(0.12) $ 756 47,172 $0.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Year Dec. 31, 2011 Year Dec. 31, 2010
--------------------------- --------------------------
Weighted Weighted
Average Average
Number of Per Net Number of Per
Net loss Shares share loss Shares share
----------------------------------------------------------------------------
Basic loss per share $(13,453) 53,611 $(0.25) $(5,193) 47,134 $(0.11)
Share options - - - - 7(i) -
----------------------------------------------------------------------------
Diluted loss per
share $(13,453) 53,611 $(0.25) $(5,193) 47,134 $(0.11)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Where the addition of share options to the total shares outstanding has
an anti-dilutive impact on the diluted earnings (loss) per share
calculation, those share options have not been included in the total shares
outstanding for purposes of the calculation of diluted earnings (loss) per
share.
15. Segmented information:
The Company manages its business as a single operating segment, solid wood. The
Company purchases and harvests logs which are then manufactured into lumber
products at the Company's sawmills, or sold. Substantially all of the Company's
operations are located in British Columbia, Canada and the U.S. Pacific
Northwest, U.S.A.
In the first quarter, 2011 the Company acquired complete control of the SGP. The
SGP was wound up on early January, 2011 but continued operations as Seaboard and
its accounts were consolidated from the date of change in control on January 5,
2011. Other sales revenues in sales by product line include the ocean freight
revenues of Seaboard.
The Company sales to both foreign and domestic markets are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Canada $ 57,691 $ 43,788 $214,876 $171,113
United States 68,723 61,865 263,166 244,625
China/Taiwan 27,030 33,225 137,421 79,625
Japan 26,978 23,092 98,088 80,856
Other export 9,530 14,333 44,465 49,399
----------------------------------------------------------------------------
$189,952 $176,303 $758,016 $625,618
----------------------------------------------------------------------------
Sales by product line are as follows:
----------------------------------------------------------------------------
3 Months 3 Months Year Year
Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2010
----------------------------------------------------------------------------
Lumber $134,897 $137,549 $538,138 $481,983
Logs 22,940 20,577 108,413 79,763
Wood chips and other
by products 17,538 15,731 68,355 56,217
Ocean freight and
other 14,577 2,446 43,110 7,655
----------------------------------------------------------------------------
$189,952 $176,303 $758,016 $625,618
----------------------------------------------------------------------------
----------------------------------------------------------------------------
16. Financial instruments:
The Company employs financial instruments such as foreign currency forward and
option contracts to manage exposure to fluctuations in foreign exchange rates
and interest rate swaps to manage exposure to interest rates. The Company does
not expect any credit losses in the event of non-performance by counterparties
as the counterparties are the Company's Canadian bankers, which are all highly
rated.
As at December 31, 2011, the Company has outstanding obligations to sell a
maximum of US$16,300,000 at an average rate of CAD$1.0334 to the US$1.00 and
sell Japanese yen 90,000,000 at an average rate of yen 75.65 to the US$1.00 and
buy US$2,000,000 at an average rate of CAD$1.01775 to the US$1.00 during 2012.
All foreign currency gains or losses to December 31, 2011 have been recognized
in Sales revenue in Net earnings and the fair value of these foreign currency
contracts being an asset of $283,000 (measured based on Level 2 of the fair
value hierarchy) has been recorded in Trade accounts receivable and other
(December 31, 2010 - $492,000 asset recorded in Trade accounts receivable and
other and $18,000 liability recorded in Trade accounts payable and accrued
liabilities measured based on Level 2 of the fair value hierarchy).
On August 25, 2011, the Company entered into two interest rate swaps, each with
notional value of $25,000,000 and maturing July 28, 2015. Under the terms of the
swaps the Company pays an amount based on a fixed annual interest rate of 1.56%
and receives a 90 day BA CDOR which is recalculated at set interval dates. The
intent of these swaps is to convert floating-rate interest expense to fixed-rate
interest expense. As these interest rate swaps have been designated as cash flow
hedges the fair value of these interest rate swaps at December 31, 2011 being a
liability of $503,000 (measured based on Level 2 of the fair value hierarchy)
has been recorded in Trade accounts payable and accrued liabilities and a charge
of $3,000 and $503,000 have been recognized in Other comprehensive income for
the fourth quarter and year, 2011 respectively.
During the fourth quarter, 2011 the Company also traded lumber futures to manage
price risk and which were designated as held for trading with changes in fair
value recorded in Other income (expense) in net earnings. At December 31, 2011
there were no outstanding lumber futures contracts and a loss of $1,000 and gain
of $187,000 were recognized in Other income (expense) on completed contracts for
the fourth quarter and the year, 2011, respectively.
17. Contingencies:
(a) Softwood Lumber Agreement:
On January 18, 2011 U.S. Trade Representative's office filed for arbitration
under the provisions of the Softwood Lumber Agreement ("SLA") over its concern
that the Province of British Columbia ("B.C.") is charging too low a price for
certain timber harvested on public lands in the B.C. Interior. The arbitration
will be conducted by the London Court of International Arbitration ("LCIA"). The
Company believes that B.C. and Canada are complying with their obligations under
the SLA.
In August, 2011 the U.S. Trade Representative filed a detailed statement of
claim with the LCIA and Canada delivered its initial response in November, 2011.
A hearing before the arbitration panel is expected to take place in early 2012
with a final decision expected by the end of 2012.
As the U.S. arbitration request is still in preliminary stages the existence of
any potential claim has not been determined and no provision has been recorded
in the financial statements as at December 31, 2011.
(b) Storm and earthquake damage:
In September 2011, an earthquake on Vancouver Island and heavy rains on the B.C.
mainland coastal and inlet areas resulted in mudslides and debris torrents with
some logging areas impacted by road washouts and bridge and culvert damage. Due
to the remoteness and magnitude of the areas impacted the Company has been
unable to fully assess the extent of the damage and its related costs.
Similarly, in the latter half of September 2010, heavy rains and strong winds on
northern Vancouver Island and the B.C. Central Coast triggered mudslides, road
washouts and flooding and caused bridge and culvert damage. Certain losses
relating to the 2010 storm damage were covered by insurance and in June, 2011
the Company settled with its insurers for recovery of qualifying expenditures,
net of the insurance deductible for total proceeds of $4,836,000 of which
$4,815,000 was received in the second quarter, 2011.
During the first quarter, 2011, the Company recorded business interruption
insurance recoveries of $2,211,000 as a reduction in Production costs in net
earnings with a further recovery of $503,000 recognized during the second
quarter, 2011 for total recoveries reflected in net earnings of $2,714,000.
A further $525,000 was applied against amounts previously set up as receivable
for costs already incurred. The remaining $1,576,000 was set up as a provision
for future remediation on roads and bridges, with $482,000 recorded in Trade
accounts payable and accrued liabilities and $1,094,000 recorded in Provisions
and other liabilities. Under the terms of the insurance settlement, the
insurance proceeds must be used for remediation.
As at December 31, 2011 $1,152,000 of these provisions remain unspent.
18. Subsequent events:
(a) Softwood Lumber Agreement extension
On January 23, 2012, the federal governments of Canada and the United States
announced a two year extension of the 2006 Softwood Lumber Agreement to October
2015.
(b) Significant customer enters into creditor protection
On January 31, 2012, Catalyst Paper Corporation ("Catalyst") announced that the
company and certain of its subsidiaries had obtained an Initial Order from the
Supreme Court of British Columbia under the Companies' Creditors Arrangement
Act. Catalyst is the primary buyer of Interfor's chips on the B.C. Coast, under
long-term purchase contracts. Catalyst is also a purchaser of Interfor's pulp
logs and other residuals.
Catalyst has indicated that the operations of the Catalyst and its subsidiaries
are intended to continue as usual, and obligations to employees and suppliers
during the restructuring process are expected to be met in the ordinary course.
All trade accounts receivable outstanding as at December 31, 2011 have been
collected in 2012 and therefore no allowance was provided. As at February 17,
2012 the trade accounts receivable at risk for non-payment total $439,000.
The outcome of Catalyst's restructuring and any potential impact to the Company
cannot be determined at this point. The Court has granted Interfor a security
interest as a critical supplier on all current and future products purchased
from Interfor.
19. Explanation of transition to IFRS:
As stated in note 2 (a), these consolidated interim financial statements are
prepared in accordance with IFRSs.
As described in note 3, the accounting policies adopted by the Company under
IFRSs have been applied in preparing the interim financial statements for the
comparative information presented in these unaudited condensed consolidated
interim financial statements for both the three months and year ended December
31, 2010.
An explanation of how the transition from previous GAAP to IFRSs has affected
the Company's financial position, financial performance and cash flows is set
out in the following tables and the notes that accompany the tables.
Reconciliation of equity
December 31, 2010
----------------------------------------------------------------------------
(thousands of Canadian dollars)
Previous IFRSs IFRSs
Note GAAP Reclassify Adjustment IFRSs
----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash
equivalents $ 9,301 $ - $ - $ 9,301
Trade accounts
receivable and
other 45,961 - - 45,961
Inventories 71,762 - - 71,762
Prepayments 8,334 - - 8,334
Deferred tax assets a 3,627 (3,627) - -
----------------------------------------------------------------------------
138,985 (3,627) - 135,358
Employee future
benefits c, i - 8,054 (7,539) 515
Investment in
associate company b, j - 17,124 (1,050) 16,074
Other investments and
assets b, c 28,618 (25,982) - 2,636
Property, plant and
equipment d, k 333,989 (1,723) 15,724 347,990
Logging roads and
bridges 17,063 - - 17,063
Timber licences 80,154 - - 80,154
Other intangible
assets d - 1,723 - 1,723
Goodwill 13,078 - - 13,078
----------------------------------------------------------------------------
$611,887 $ (4,431) $ 7,135 $614,591
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Equity
Current liabilities:
Trade accounts
payable and accrued
liabilities e, n $ 58,267 $ (9,785) $ 1,571 $ 50,053
Reforestation
liability e - 9,785 - 9,785
Income taxes payable 230 - - 230
Payable to investee
company 15,738 - - 15,738
----------------------------------------------------------------------------
74,235 - 1,571 75,806
Reforestation
liability m 15,017 - 2,308 17,325
Long-term debt 156,037 - - 156,037
Employee future
benefits c, i - 4,348 1,467 5,815
Provisions and other
liabilities c, m, n 15,695 (5,152) 1,615 12,158
Deferred income taxes a, p 3,627 (3,627) - -
Equity:
Share capital
Class A subordinate
voting shares 285,362 - - 285,362
Class B common
shares 4,080 - - 4,080
Contributed surplus 5,408 - - 5,408
Translation reserves h (32,501) 24,855 - (7,646)
Retained earnings h, q 84,927 (24,855) 174 60,246
----------------------------------------------------------------------------
347,276 - 174 347,450
----------------------------------------------------------------------------
$611,887 $ (4,431) $ 7,135 $614,591
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of comprehensive income (loss):
(thousands of Canadian dollars)
Three months ended
December 31, 2010
----------------------------------------------------------------------------
Previous IFRSs IFRSs
Note GAAP Reclassify Adjustment IFRSs
----------------------------------------------------------------------------
Sales $176,303 $ - $ - $176,303
Costs and Expenses:
Production f, i, k, m 154,813 (173) (870) 153,770
Selling and
administration 4,328 - - 4,328
Long term
incentive
compensation
expense n 1,419 - 1,027 2,446
Export taxes 2,524 - - 2,524
Depreciation of
plant and
equipment d 7,495 (151) - 7,344
Depletion and
amortization of
timber, roads
and other f 4,438 (81) - 4,357
----------------------------------------------------------------------------
175,017 (405) 157 174,769
----------------------------------------------------------------------------
Operating earnings
(loss) before
restructuring
costs 1,286 405 (157) 1,534
Restructuring costs
(recovery) (9) - - (9)
----------------------------------------------------------------------------
Operating earnings
(loss) 1,295 405 (157) 1,543
Finance costs f - (2,509) - (2,509)
Interest expense on
long-term debt f (1,968) 1,968 - -
Other interest
expense f (136) 136 - -
Other foreign
exchange loss (169) - - (169)
Other income (284) - - (284)
Equity in earnings
of associate
company j 1,701 - (49) 1,652
----------------------------------------------------------------------------
(856) (405) (49) (1,310)
----------------------------------------------------------------------------
Earnings (loss)
before income
taxes 439 - (206) 233
Income tax expense
(recovery):
Current 18 - - 18
Deferred p (130) - (411) (541)
----------------------------------------------------------------------------
(112) - (411) (523)
----------------------------------------------------------------------------
Net earnings (loss) 551 - 205 756
Other comprehensive
income (loss):
Foreign currency
translation
differences -
foreign
operations (4,730) - - (4,730)
Defined benefit
plan actuarial
losses i - - 1,644 1,644
Equity share of
associate's
defined benefit
plan actuarial
losses j - - 372 372
Income tax
(expense)
recovery on
other
comprehensive
income (loss) p 130 - (411) (281)
----------------------------------------------------------------------------
(4,600) - 1,605 (2,995)
----------------------------------------------------------------------------
Total comprehensive
income (loss) for
the period $ (4,049) $ - $ 1,810 $ (2,239)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss)
per share, basic
and diluted $ 0.01 $ - $ 0.01 $ 0.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of comprehensive income (loss):
(thousands of Canadian dollars)
Year ended
December 31, 2010
----------------------------------------------------------------------------
Previous IFRSs IFRSs
Note GAAP Reclassify Adjustment IFRSs
----------------------------------------------------------------------------
Sales $625,618 $ - $ - $625,618
Costs and Expenses:
Production f, i, k, m 557,122 (787) 216 556,551
Selling and
administration 17,508 - - 17,508
Long term
incentive
compensation
expense n 1,873 - 93 1,966
Export taxes 7,427 - - 7,427
Depreciation of
plant and
equipment d 28,117 (642) - 27,475
Depletion and
amortization of
timber, roads
and other f 19,008 (487) - 18,521
----------------------------------------------------------------------------
631,055 (1,916) 309 629,448
----------------------------------------------------------------------------
Operating earnings
(loss) before
restructuring
costs (5,437) 1,916 (309) (3,830)
Restructuring costs
(recovery) 1,578 - - 1,578
----------------------------------------------------------------------------
Operating earnings
(loss) (7,015) 1,916 (309) (5,408)
Finance costs f - (10,441) - (10,441)
Interest expense on
long-term debt f (7,944) 7,944 - -
Other interest
expense f (581) 581 - -
Other foreign
exchange loss (280) - - (280)
Other income (25) - - (25)
Equity in earnings
of associate
company j 11,446 - (15) 11,431
----------------------------------------------------------------------------
2,616 (1,916) (15) 685
----------------------------------------------------------------------------
Earnings (loss)
before income
taxes (4,399) - (324) (4,723)
Income tax expense
(recovery):
Current 60 - - 60
Deferred p (525) - 935 410
----------------------------------------------------------------------------
(465) - 935 470
----------------------------------------------------------------------------
Net earnings (loss) (3,934) - (1,259) (5,193)
Other comprehensive
income (loss):
Foreign currency
translation
differences -
foreign
operations (7,433) - - (7,433)
Defined benefit
plan actuarial
losses i - - (2,490) (2,490)
Equity share of
associate's
defined benefit
plan actuarial
losses j - - (115) (115)
Income tax
(expense)
recovery on
other
comprehensive
income (loss) p (213) - 623 410
----------------------------------------------------------------------------
(7,646) - (1,982) (9,628)
----------------------------------------------------------------------------
Total comprehensive
income (loss) for
the period $(11,580) $ - $(3,241) $(14,821)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss)
per share, basic
and diluted $ (0.08) $ - $ (0.03) $ (0.11)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Presentation reclassifications:
(a) Deferred taxes:
Under Canadian GAAP deferred taxes are split between current and non-current
components on the basis of either the underlying asset or liability or the
expected reversal of items not related to an asset or liability.
Under IFRS deferred tax assets and liabilities are classified as non-current.
Consequently, current deferred tax assets under Canadian GAAP have been
reclassified against non-current deferred tax liabilities to conform to IFRS
requirements.
(b) Investment in associate company:
Under Canadian GAAP separate disclosure of investments accounted for on the
equity basis is required but may be disclosed in either the financial statements
or the notes to the financial statements.
Under IAS 1, Presentation of Financial Statements, investments accounted for
using the equity method must be disclosed separately in the Statement of
Financial Position.
The Company's investment in an associate company has been reclassified from
Other investments and assets as a separate line item on the Statement of
Financial Position to conform to IFRS requirements.
(c) Employee future benefits:
Employee benefit plan assets and obligations have been reclassified from Other
investments and assets and Provisions and other liabilities to highlight items
where there has been a significant transitional IFRS adjustment in accordance
with IAS 34, Interim Financial Reporting.
(d) Other intangible assets, net of accumulated amortization:
Under Canadian GAAP computer software acquired or developed for use is treated
as a component of Property, plant and equipment.
Under IAS 38, Intangible Assets, computer software acquired or developed for use
meets the definition of an intangible asset and is therefore reclassified from
Property, plant and equipment on the Statement of Financial Position as is the
related amortization on the Statement of Comprehensive Income.
(e) Reforestation liability, current:
IAS 1, Presentation of Financial Statements, requires the separate disclosure of
provisions, where significant. Consequently, the current portion of
reforestation liability has been reclassified from Trade accounts payable and
other accrued liabilities.
(f) Finance costs:
Under IFRS 7, Financial Instruments: Disclosures, interest expense on
borrowings, the unwinding of the discount on provisions (accretion expense), the
amortization of prepaid financing costs and other related transaction costs are
disclosed as finance costs.
Under Canadian GAAP, interest expense on borrowings was disclosed separately,
accretion expense was included in Production costs and the amortization of
prepaid financing costs were included in Depletion and amortization of timber,
roads and other.
To comply with IFRS, these items have been reclassified to Finance costs on the
Statement of Comprehensive Income.
(g) Interest paid:
Cash flows relating to interest paid have been classified as financing
activities in the Statement of Cash Flows.
First-time adoption elections and changes due to IFRS:
(h) Currency translation differences:
Retrospective application of IFRS would require the Company to determine
cumulative currency translation differences in accordance with IAS 21, The
Effects of Changes in Foreign Exchange Rates, from the date a foreign subsidiary
was formed or acquired. IFRS 1, First-time Adoption of International Financial
Reporting Standards, permits cumulative translation gains and losses to be reset
to zero at the transition date. The Company elected to reset all cumulative
translation gains and losses to zero in the opening retained earnings at January
1, 2010.
The impact on the Statement of Financial Position is summarized as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Reserve increase $ 24,855
----------------------------------------------------------------------------
Reduction to retained earnings $ (24,855)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Employee future benefits:
IFRS 1 provides the option to retrospectively apply the corridor approach under
IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or
to recognize all cumulative gains and losses deferred under Canadian GAAP in
opening retained earnings as at the transition date. The Company elected to
recognize all cumulative actuarial gains and losses that existed at its
transition date of January 1, 2010 in opening retained earnings for all of its
employee benefit plans.
Under Canadian GAAP actuarial gains and losses that arise in calculating the
present value of the defined benefit obligations and the fair value of plan
assets are recognized on a systematic and consistent basis subject to a minimum
required amortization based on a "corridor" approach. The corridor was 10% of
the greater of the accrued benefit obligation at the beginning of the year and
the fair value of plan assets at the beginning of the year. The unamortized net
actuarial gains and losses in excess of the corridor is amortized as a component
of pension expense on a straight-line basis over the expected average remaining
service life of active participants. Actuarial gains and losses below the 10%
corridor are deferred.
Under IFRS the Company elected to recognize all actuarial gains and losses
immediately Other comprehensive income without recycling to the income statement
in subsequent periods. As a result, actuarial gains and losses are not amortized
to the income statement but rather are recorded directly to other comprehensive
income at the end of each period. Consequently, the Company adjusted its pension
expense to remove the amortization of actuarial gains and losses.
Under Canadian GAAP when a defined benefit plan gives rise to an accrued benefit
asset, a provision is recognized for any excess of the accrued benefit asset
over the expected future benefit. The accrued benefit asset is presented in the
Statement of Financial Position net of the provision. A change in the provision
is recognized in earnings for the period in which the change occurs.
IFRS also limits the recognition of the net benefit asset under certain
circumstances to the amount that is recoverable. Since the Company has elected
to recognize all actuarial gains and losses in Other comprehensive income,
changes in the provision are recognized in other comprehensive income in the
period in which the change occurs. The Company did not have a provision in
respect of its benefit assets for any of the periods presented.
The impact on the Statement of Financial Position was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Employee benefit assets decrease $(7,539)
Employee benefit obligations increase (1,467)
Related tax effect 2,251
----------------------------------------------------------------------------
Reduction to retained earnings $(6,755)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive Income was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Production expense decrease $ (358) $ (355)
Other comprehensive loss (income):
Defined benefit plan actuarial losses
(gains) (1,644) 2,490
----------------------------------------------------------------------------
Reduction to (increase in) comprehensive
income before income taxes $(2,002) $ 2,135
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(j) Investment in associate company:
In applying the equity method of accounting for an investment in an associate
company both Canadian GAAP and IFRS require the accounting policies of the
associate entity to be consistent with those of the parent company. As such, the
employee defined benefit asset of the associate company has been adjusted to
reflect the same policies as described in Note 19 (i) for employee future
benefits and the Company has reflected its proportionate share of the
associate's after-tax adjustments to earnings and comprehensive income.
The impact on the Statement of Financial Position was:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Dec. 31, 2010
--------------------------------------------------------------------------
Investment in associate decrease $(1,050)
--------------------------------------------------------------------------
Reduction to retained earnings $(1,050)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The impact on the Statement of Comprehensive
Income was:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
--------------------------------------------------------------------------
Equity in income $ 49 $ 15
Other comprehensive loss (income):
Equity share of associate's defined
benefit plan actuarial losses (gains) (372) 115
--------------------------------------------------------------------------
Reduction to comprehensive income before
income taxes $ 323 $ 130
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(k) Property, plant and equipment:
IFRS 1 allows a company to elect to measure an item of property, plant and
equipment at the date of transition at its fair value and use that fair value as
its deemed cost at that date. The Company identified a property at its Hammond
sawmill site which it elected to use fair value as its deemed cost. As at
January 1, 2010 the fair value of the property was estimated to be $16,320,000
with a historical cost of $572,000.
In addition, the Company reversed certain costs related to the transfer of
equipment from one sawmill site to another which, under previous GAAP, qualified
for capital treatment, but under IFRS do not.
The impact on the Statement of Financial Position was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Property, plant and equipment increase $15,724
Related tax effect (1,963)
----------------------------------------------------------------------------
Increase in retained earnings $13,761
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive
Income was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Production expense increase $24 $ 24
----------------------------------------------------------------------------
Reduction to comprehensive income before income
taxes $24 $ 24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(l) Borrowing costs:
IAS 23, Borrowing Costs, requires an entity to capitalize the borrowing costs
for qualifying assets for which the commencement date for capitalization is on
or after January 1, 2009. Early adoption is permitted. IFRS 1 contains an
exemption allowing companies to apply this standard to assets for which the
commencement date is the later of January 1, 2009 and the date of transition.
The Company elected to take this IFRS 1 exemption and, therefore, borrowing
costs prior to January 1, 2010 are expensed.
(m) Decommissioning provisions:
The Company's logging activities give rise to obligations for reforestation and
deactivation of logging roads. In addition, the Company has also recognized some
environmental provisions.
Provisions are measured at the expected value of future cash flows, discounted
to their present value and determined according to the probability of
alternative estimates of cash flows occurring for each operation. Canadian GAAP
requires the provision to be measured at fair value based on the amount a third
party would charge for performing the remediation work. The measurement under
IAS 37, Provisions, Contingent Liabilities and Contingent Assets, is based on
"best estimate". The best estimate calculation can be based on internal or
external costs, depending upon which is most likely.
Discount rates used under Canadian GAAP for decommissioning provisions (known as
asset retirement obligations under Canadian GAAP) are based on the Company's
credit-adjusted risk-free rate. Adjustments are made to decommissioning
provisions for changes in the timing or amount of the cashflows and the
unwinding of the discount. Changes in estimates that decrease provisions are
discounted using the discount rate applied upon initial recognition of the
liability; changes in estimates that increase the provision are discounted using
the current discount rate.
Discount rates used under IFRS reflect the risks specific to the decommissioning
provision. Adjustments are made to decommissioning provisions each period for
changes in the timing or amount of cash flows, changes in the discount rate and
the unwinding of the discount. As such, the discount rate reflects the current
risk-free rate given that risks are incorporated into the future cash flow
estimates.
The impact on the Statement of Financial Position was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Reforestation liability, non-current increase $(2,308)
Provisions and other liabilities increase (1,018)
Related tax effect 832
----------------------------------------------------------------------------
Reduction to retained earnings $(2,494)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive
Income was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Production expense increase (decrease) $(536) $ 547
----------------------------------------------------------------------------
Reduction to (increase in) comprehensive
income before income taxes $(536) $ 547
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(n) Share-based payments:
The Company has granted certain cash-settled share-based payments to certain
employees. The Company accounted for these share- based payment arrangements by
reference to their intrinsic value under Canadian GAAP.
Under IFRSs the related liability has been adjusted to reflect the fair value of
the outstanding cash-settled share-based payments. The fair value is estimated
by applying an option pricing model and until the liability is settled the fair
value of the liability is remeasured at each reporting date, with changes in
fair value recognized as the awards vest. Additionally, IFRS requires an
estimate of the number of awards expected to vest, which is revised if
subsequent information indicates that actual forfeitures are likely to differ
from the estimate.
As a result, the Company adjusted expenses associated with cash-settled
share-based payments to reflect the changes of the fair values of these awards.
The impact on the Statement of Financial Position was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Trade accounts payable and accrued liabilities
increase $(1,571)
Provisions and other liabilities increase (597)
Related tax effect 542
----------------------------------------------------------------------------
Reduction to retained earnings $(1,626)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive
Income was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Long term incentive compensation expense
increase $1,027 $ 93
----------------------------------------------------------------------------
Reduction to comprehensive income before income
taxes $1,027 $ 93
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(o) Business combinations:
IFRS 1 provides the option to apply IFRS 3, Business Combinations,
retrospectively or prospectively from the date of transition of January 1, 2010.
The retrospective basis would require restatement of all business combinations
that occurred prior to the transition date. The Company elected not to
retrospectively apply IFRS 3 to business combinations that occurred prior to its
transition date and such business combinations have not been restated. Any
goodwill arising on such business combinations prior to the transition date has
not been adjusted from the carrying value previously determined under Canadian
GAAP as a result of applying these exemptions.
(p) Income taxes:
Due to the cyclical nature of the wood products industry and the economic
conditions over the last several years, the Company has not recognized the
benefit of deferred tax assets in excess of deferred tax liabilities under
Canadian GAAP or IFRS.
The above changes had the following impact on deferred income tax
liabilities based on a tax rate of 25 percent:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Employee future benefits $ 2,251
Property, plant and equipment (1,963)
Decommissioning provisions 832
Share-based payments 542
Reduction of deferred income tax assets for
loss carry-forwards not recognized (1,662)
----------------------------------------------------------------------------
Reduction to deferred income tax liability and
increase in retained earnings $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive Income was:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Deferred income tax expense (recovery) $(411) $ 935
Income tax expense (recovery) on other
comprehensive losses 411 (623)
----------------------------------------------------------------------------
Reduction to comprehensive income $ - $ 312
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(q) Retained earnings:
The above changes had the following impact on retained earnings:
----------------------------------------------------------------------------
---------------------------------------------------------------------------
Dec. 31, 2010
----------------------------------------------------------------------------
Employee future benefits $ (6,755)
Investment in associate company (1,050)
Property, plant and equipment 13,761
Decommissioning provisions (2,494)
Share-based payments (1,626)
Tax reduction of deferred income tax assets
for loss carry-forwards not recognized (1,662)
----------------------------------------------------------------------------
Reduction to retained earnings due to IFRS
adjustments 174
Reclassifications due to IFRS
Currency translation adjustments (24,855)
----------------------------------------------------------------------------
Reduction to retained earnings $(24,681)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The impact on the Statement of Comprehensive Income was:
----------------------------------------------------------------------------
---------------------------------------------------------------------------
3 Months Year
Dec. 31, 2010 Dec. 31, 2010
----------------------------------------------------------------------------
Production expense increase (decrease)
Employee future benefits increase (decrease) $ (358) $ (355)
Decommissioning provisions increase (536) 547
Property, plant and equipment 24 24
----------------------------------------------------------------------------
(870) 216
Long term incentive compensation expense 1,027 93
Equity in earnings of associate company
increase 49 15
Deferred income tax expense (recovery) (411) 935
----------------------------------------------------------------------------
Increase in (reduction to) net loss/decrease
in (increase in) net earnings (205) 1,259
----------------------------------------------------------------------------
Other comprehensive loss increase (decrease):
Defined benefit plan actuarial losses
(gains) (1,644) 2,490
Equity share of associate's defined benefit
plan actuarial losses (gains) (372) 115
Income tax recovery on other comprehensive
losses 411 (623)
----------------------------------------------------------------------------
Increase in (reduction to) other comprehensive
loss (1,605) 1,982
----------------------------------------------------------------------------
Increase in (reduction to) comprehensive loss $(1,810) $ 3,241
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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